G.M.'s Latest Plan Envisions a Much Smaller Automaker

DETROIT — For all the uncertainty swirling around General Motors, the troubled automaker said Monday that one thing was clear: it must become drastically smaller if it hopes to remain a viable company, regardless of whether it has to file for bankruptcy.

G.M. said it would eliminate another 21,000 factory jobs, close 13 plants, cut its vast network of 6,500 dealers almost in half and shutter its Pontiac division.

By the time it is finished, G.M. expects to have only 38,000 union workers and 34 factories left in the United States, compared with 395,000 workers in more than 150 plants at its peak employment in 1970.

One goal of this latest plan was to convince the Obama administration, which has been skeptical of G.M.’s previous restructuring goals, that the company is willing to take harsh measures and cut its bloated infrastructure to match its steadily declining share in the United States.

Absent such steps, the government has said it is reluctant to lend the company more money. But for the first time since it toppled into financial crisis last year, G.M. appears to be earning government support.

That might mean billions more in loans if the company’s stakeholders can come to an agreement before a deadline at the end of May. G.M. said on Monday that it needed to borrow $11.6 billion more, for a total of $27 billion.

President Obama’s auto task force said Monday it had “made no final decision” on future investments in G.M., which is subsisting on $15.4 billion in federal loans. The task force, however, called the new plan an “important step in G.M.’s efforts to restructure its company.”

This plan is a far cry from G.M.’s strategy of just a year ago, when it was waging a spirited battle with Toyota for the title of world’s largest automaker.

Where once G.M. had a 50 percent share of the market for new vehicles in the United States, the company hopes to at least hang on to its current 18 percent share.

Analysts warned that even those projections could be optimistic. “There is still a huge risk for market share losses beyond what the company is forecasting,” said John Casesa, an industry consultant.

G.M., however, still faces difficult odds of restructuring outside of bankruptcy court.

The company is still negotiating with the United Automobile Workers union. The government wants the union to accept company stock to finance half of G.M.’s $20 billion obligation for retiree health care.

The U.A.W. this weekend agreed to a similar health care deal with Chrysler, which has borrowed $4 billion from the government and hopes to get $6 billion more. The union’s new retiree health care trust would own a majority stake in Chrysler in exchange for helping the carmaker save $4.5 billion.

A summary given to union leaders said Fiat would ultimately own 35 percent and that 10 percent would be held by the government and Chrysler’s lenders, two people with direct knowledge of the deal said.

Chrysler would give the union a 55 percent stake to cut its obligations to the health care trust in half, said these people, who spoke on condition of anonymity because details of the agreement have not been released publicly.

Photo

Fritz Henderson, chief executive of General Motors, at a press conference on Monday at G.M. world headquarters in Detroit. Credit
Fabrizio Costantini for The New York Times

The deal suspends cost-of-living pay increases, limits overtime pay and reduces paid time off. It also eliminates dental and vision benefits for retirees. It also provides for Fiat to begin building cars in at least one Chrysler plant.

G.M., however, will have more trouble winning over its bondholders.

The company, after consulting with Treasury officials, offered on Monday to give the holders of $27 billion in unsecured debt 225 shares in G.M. stock for every $1,000 in debt.

G.M. said it would have to file for Chapter 11 bankruptcy protection unless 90 percent of the vast bondholder group accepted the terms by June 1.

“I can’t imagine that this is going to go through,” Shelly Lombard, a bond analyst with the firm Gimme Credit, said. “This is not an olive branch to come back to the table. This is basically a sledgehammer. Having said that, I’m not sure that bondholders have a lot of other options.”

Fritz Henderson, G.M.’s chief executive, also expressed doubts that enough bondholders would take the offer. Even if they do not, which would push the company into bankruptcy, he said he expected the company to pursue its restructuring.

“If it can’t be done outside a bankruptcy, we’ll do it in a bankruptcy,” he said.

If bondholders approve the debt-for-equity exchange, they would own about 10 percent of G.M., making them a minority shareholder in a company controlled by the Treasury and the U.A.W.’s retiree trust.

According to the offer, the Treasury would own at least 50 percent of G.M. in exchange for forgiving about $10 billion in federal loans. The union trust, in turn, would receive a stake of about 39 percent.

A committee of big G.M. bondholders on Monday called the offer a “a blatant disregard for fairness for the bondholders” and an example of “political favoritism” toward the U.A.W. “The current offer is neither reasonable nor adequate,” the committee said.

Representative Thaddeus McCotter, a Michigan Republican, is concerned that some bondholders want the company to go bankrupt because they also hold credit-default swaps insuring them against losses.

He is urging the Treasury secretary, Timothy F. Geithner, to disclose which G.M. bondholders have default swaps from the American International Group, the insurance company that was bailed out by the government.

“It would be unconscionable to use taxpayer money to help people benefit from the bankruptcy of General Motors,” Mr. McCotter said.

Several industry analysts said the bondholder offer appeared destined to fail.

“Unless the offer is revised before May 8, G.M. could potentially file for Chapter 11 protection by the end of next month,” Brian Johnson, of Barclays Capital, wrote in a note to clients.

Many dealers said they were stunned by how quickly G.M. wanted to eliminate more than 2,600 showrooms.

“This is just too rapid, and I think it’s going to create a disorderly shutdown of a lot of stores,” said John McEleney, chairman of the National Automobile Dealers Association. “In the short term, they’re likely to lose sales, which is counterproductive to G.M.’s recovery.”

Senator Carl Levin, a Democrat from Michigan, said he received assurances from the task force late Monday that protecting jobs would be a high priority as it evaluated G.M.’s new plan.

“The depth of the pain inflicted on our workers, families and communities by these decisions should not be minimized,” Mr. Levin said. “It appears G.M. was left no choice, and I now believe bondholders have no choice, either, but to accept significant losses as a better alternative to bankruptcy.”

A version of this article appears in print on , on page A1 of the New York edition with the headline: Latest G.M. Plan Cuts More Jobs, Halves Dealers. Order Reprints|Today's Paper|Subscribe